Nevada’s construction sector out of the basement, on its way up

Nevada’s construction sector out of the basement, on its way up

A worker resurfaces a cement wall at the construction site of the new SLS Las Vegas casino-hotel at the intersection of Sahara Avenue and Las Vegas Boulevard in Las Vegas Wednesday, June 4, 2014. (Erik Verduzco/Las Vegas Review-Journal)

Nevada’s construction sector out of the basement, on its way up

A worker resurfaces a cement wall at the construction site of the new SLS Las Vegas casino-hotel at the intersection of Sahara Avenue and Las Vegas Boulevard in Las Vegas Wednesday, June 4, 2014. (Erik Verduzco/Las Vegas Review-Journal)

By JENNIFER ROBISONLAS VEGAS business press

Nevada’s construction sector is building its way out of the basement.

Once the leader of the state’s economic collapse, construction is now posting the fastest job-growth rate of any sector. And that’s important because construction is a reactive industry that responds to broader business conditions, observers say.

“When you see more construction, generally, you’re seeing that developers are willing to spend money. It’s a really good indicator that there’s confidence in the market and people are growing again,” said John Cannito, chief operating officer of The PENTA Building Group in Las Vegas.

Added Steve Brown, director of UNLV’s Center for Business and Economic Research: “Construction is more an indicator than a driver of growth. What drives construction is growth of the economy overall, as well as a growing population.”

If that’s the case, then today’s building industry points to a solid underlying expansion for Nevada and the Las Vegas Valley.

Construction is now growing at a faster rate than any of Nevada’s nine other “supersectors.” The industry’s 9.4 percent job-formation rate year over year from January to April bested expansion in professional and business services (7.9 percent), trade, transportation and utilities (3.7 percent), and leisure and hospitality (3.3 percent), according to numbers from the state Department of Employment, Training and Rehabilitation.

What’s more, Nevada’s building industry had 62,600 employees in April, up 34 percent from a low of 46,700 in mid-2012.

None of that is to say the industry has recovered. Construction jobs maxed out at 148,000 jobs in mid-2006, so they’re still at less than half of their boom-era peak. Taken another way, a lot of today’s growth rate is simply a function of how far the industry fell in the downturn.

But market fundamentals hint there’s more growth to be had. To understand why, start with what’s pushing gains.

For PENTA, new business is coming mostly from renovation jobs on the Strip, including transformation of the former Sahara into SLS Las Vegas. Its preconstruction department, which sees proposed projects during the design stage, is seeing strong traffic, which should translate into more new construction in 2015, Cannito said.

There’s also a “fair amount” of retail building happening on the Strip, Brown said, with projects completed or underway at the Flamingo, Bally’s, TI and New York-New York.

Construction remains relatively sluggish in office and industrial space, where double-digit percentage vacancy rates mean an oversupply of space that limits demand for new construction. Nor has housing contributed much, with new-home building at a fraction of its pre-recession levels as builders grapple with a shortage of developable lots, Brown said.

To diversify and prepare for future ups and downs, PENTA has added lines of business in higher education and health care. Health care in particular has come on strong lately, with big increases in renovation work, Cannito said.

Still, PENTA is at 131 salaried workers, compared with 175 before the recession. The company doesn’t necessarily aspire to return to boom-era growth, Cannito said, but he added that he wouldn’t be surprised if it did in the next couple of years.

Marketwide, don’t expect construction jobs to go back to pre-bust levels. Brown called the sector’s 2006 jobs base “unsustainable,” because population growth is now half of what it was in the boom.

There is room for more industry improvements, though.

Key projects, including Resorts World Las Vegas and MGM Resorts International’s 20,000-seat arena behind the New York-New York, have yet to ramp up. When they do, they should create thousands of new building jobs.

Also, Southern Nevada’s long-term population growth should clock in at about 1.5 percent, which will best a national growth rate of around 0.9 percent, Brown said. And as long as population growth is above average, the building sector could continue to expand.

■ Brokers with Colliers International closed in recent weeks on several notable sales and leases.

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